‘Last Best Chance’ for Renewable Energy Tax Credits?

With Wednesday’s passage of a House bill that could extend the production and investment tax credits, many in the industry are cautiously hoping for an end to a political standoff that has threatened to cripple the nation’s renewable energy industry.

Some advocacy groups worry that the latest legislation is the final opportunity to get the tax credits passed before the industry starts seeing serious slowdowns in the market.

“This House bill, coming in the wake of so many other failed attempts to pass similar legislation, is really our last best chance to extend the tax incentives,” said Chris Stimpson, executive campaigner for the grassroots advocacy organization Solar Nation. “While Congress often passes last-minute extenders in December, we shouldn’t hold our breath for that either.”

Called the Renewable Energy and Job Creation Act of 2008, the bill extends the production tax credit (PTC) for one year, extends the investment tax credit (ITC) for six years, and authorizes $2 billion for new clean renewable energy bonds to finance renewable energy facilities.

Now the tax extension package moves onto the Senate where it is expected to face an uphill battle because of disagreements over how to pay for the credits — an issue that has hindered the process from the start. According to industry lobbyists, the House Ways and Means Committee has been working closely with the Senate Finance Committee to figure out a funding source that is acceptable to both chambers of Congress; however, it appears that any “pay-fors” demanded by Democrats are not agreeable to most Republicans.

The latest US $20 billion tax package for renewables is offset by closing a tax loophole that allows employees of specific offshore corporations (i.e. hedge fund managers) to avoid taxes on their compensation. While this funding source has been agreed upon by the respective House and Senate financial committees, it most likely will not have support from the broader Senate. This has industry representatives in Washington frustrated about the possibility that the tax credits will yet again be squashed because of funding disagreements.

“For the Senate, the choice is now clear: they can either protect tax loopholes for privileged investment managers, or create tens of thousands of green-collar jobs in a troubled economy,” said Rhone Resch, president of the Solar Energy Industries Association (SEIA) in a statement issued after Wednesday’s House vote.

There is some speculation that election-year politics are dragging the process out. When Democrats took over Congress in 2006, they promised never to pass spending legislation without getting funding from somewhere else. Not wanting to stray from that initial commitment and look hypocritical to the electorate, party leaders are not budging from their “pay as you go” policy. Meanwhile, in an attempt to distinguish themselves, Republicans have disagreed with the funding sources for the credits proposed by Democrats. This may be an attempt by both parties to paint the other as hindering progress, say some analysts.

“As a result of this happening in an election year, you’ve seen lines drawn in the sand and bills bouncing back and forth. There’s been some progress in recent months, but it’s certainly made things more difficult,” said Scott Sklar, president of the consulting firm The Stella Group.

To further complicate matters, the latest bill could be vetoed by President Bush if it does get through the Senate. Earlier this week, the President’s advisors recommended that he block the legislation because, yet again, the proposed offsets are unacceptable to the administration.

By most accounts, this year was supposed to be the tipping point for renewable energy in the U.S. With ever-bigger wind and solar projects going up at a breakneck pace, the mainstream news media jumping on any story about the “greening” of America and politicians of every stripe declaring renewables a national priority, the pieces seemed to be falling together. The only problem, say analysts, is that the industry still can’t get the long-term support it needs to do the job expected of it.

“We simply aren’t going to create more jobs, pour billions into the economy and diversify our energy supply if we don’t get the support we need,” said Sklar. “We have to remain hopeful that we’ll reach a deal. But if Congress somehow flubs this thing…they are going to see a lot of companies go out of business and a lot of people lose their jobs.”

There have been a spate of reports released over the last year addressing the renewable energy industry’s contribution to the U.S. economy. A recent report from Navigant Consulting found that the failure to extend the PTC and ITC could result in the loss of 116,000 jobs and US $19 billion in economic activity through 2009. Broken down by industry, the report predicts 39,400 jobs lost in the solar sector and 76,800 jobs lost in the wind sector.

While next year’s prospects look grim for the industry if it can’t get an extension of these tax credits, most analysts and companies are staying positive about the U.S., which could be the biggest renewable energy market in the world.

“It is a shame that we’re at this point…But I don’t think people are just going to give up on this market. It’s such an enormous opportunity,” said Reese Tisdale, a senior analyst at Emerging Energy Research.

Some big announcements over the past year have shown that there is still confidence in the U.S. Vestas plans to build a US $245 million wind tower manufacturing facility in Colorado, creating 400 new jobs. Siemens plans to double capacity at its blade production facility in Iowa, creating 200 additional jobs. And SCHOTT Solar has broken ground on its US $500 million New Mexico facility that will manufacture photovoltaic modules and receiver tubes for concentrating solar power plants. All three companies have expressed their hope that the U.S. Congress will extend the tax credits.

“That’s not to say that there are not other manufacturers out there…who aren’t concerned about the market…and I think the regulatory environment has a lot to do with it,” said Tisdale.

Most analysts say that if the tax credits are not extended by this summer, financing will start to go away, projects will be dropped and jobs will be lost. The extent of the negative economic impact will depend on how many projects companies can realistically develop before the end of the year. In the meantime, trade groups in Washington are working overtime to make sure those project pipelines don’t get disrupted.

“I think everyone expects that we’ll extend these credits somehow,” said Jeff Deyette, an analyst with the Union of Concerned Scientists. “But pretty soon there could be escalating negative consequences down the value chain if something isn’t done. Congress needs to pass these credits and pass them quickly.”

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